Gold Approaches 1800 Again

Gold price approached 1800 again as the US dollar weakened. Disappointments from Merkel and Sakorzy's meeting also drove demand for safe-haven higher. The benchmark Comex contract for the yellow metal rose for a third consecutive day and settled at 1797.6, up +0.71%. It was indeed a quiet session yesterday. Risk appetite was initially lifted as retailers reported strong earnings results and US President Barack Obama pledged to adopt new measures to reduce deficits and boost employment growth. Optimism was then pared after US' PPI exceeded expectations and mortgage applications plunged. The near-term outlook for financial markets remains mixed.

US President Barack Obama said that he will propose a plan in September to stimulate economic growth and the job market. It's believed the plan will include tax reduction, construction work and assistance for the unemployed. Concerning the economic outlook, Obama said he's not worried about another recession but the country is 'in danger of not having a recovery that is fast enough to deal with a genuine unemployment crisis for a whole lot of folks out there'.

Inflation pressure continued to rise in the US with the July PPI rising +0.2% m/m (consensus: +0.1%) in July after contracting -0.4% a month ago. From a year ago, the reading surged +7.2%, following a +7% gain in June. Core inflation rose +0.4% and +2.5% on monthly and annual basis respectively. Both readings exceeded market forecasts and June's figures. 2 dissenters of the Fed's decision to leave interest rates at almost 0% for at least until mid-2013 expressed their concerns over inflation yesterday. Philly Fed President Plosser said the decision was an 'inappropriate policy at an inappropriate time'. He is concerned that inflation will accelerate in 2012 and 2013. Both he and Dallas Fed Fisher said that the easing measures should not be used to boost the stock market. Fisher said the central bank should 'never enact such asymmetric policies to protect stock market traders and investors'.

Today, we will receive July's CPI which probably rose +0.2% m/m after slipping -0.2% in June. Core inflation might have eased to +0.2% in July from +0.3% in the prior month. Moreover, initially jobless claims probably increased +5K to 400K in the week ended August 13. Existing home sales is expected to have gained +2.73% to 4.90M in July while Philly Fed Index climbed higher to 3.9 in August from 3.2 a month ago.